6. Stock Based Compensation

The Company issues shares pursuant to the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan (the “2011 Incentive Plan”), approved at the annual shareholders’ meeting on May 13, 2015. Shares issued pursuant to awards granted prior to the 2011 Incentive Plan were issued subject to previous stock plans. For purposes of counting the shares remaining available under the 2011 Incentive Plan, each share issuable pursuant to outstanding full value awards, such as restricted stock units and performance shares, will count as two shares used, whereas each share underlying a stock appreciation right or stock option will count as one share used. Under the 2011 Incentive Plan, 5,560 shares of common stock have been authorized and reserved for issuance to eligible participants, of which 2,988 represent shares that were authorized for issuance but not issued or subject to outstanding awards at December 31, 2015. The 2011 Incentive Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted or to delegate its authority under the plan to the Company’s executive officers to make grants to non-executive officer level employees, to determine the type of awards and when the awards are to be granted, the number of shares to be covered by each award, the vesting schedule and all other terms and conditions of the awards. The exercise price for stock awards granted under the 2011 Incentive Plan cannot be less than fair market value at the date of grant.

Stock only stock appreciation rights (“SOSARs”) generally vest equally over two and three years and expire after seven years. Stock-based compensation expense is generally recognized on a straight-line basis for each separate vesting portion. Compensation expense related to employees eligible to retire and retain full rights to the awards is recognized over six months which coincides with the notice period. The Company has also granted SOSARs and stock awards with performance vesting conditions and/or market vesting conditions. Compensation expense on SOSARs subject to performance conditions is recognized over the longer of the estimated performance goal attainment period or time vesting period. Compensation expense on stock awards subject to performance conditions, which is based on the quantity of awards the Company has determined are probable of vesting, is recognized over the longer of the estimated performance goal attainment period or time vesting period. Compensation expense is recognized ratably for awards subject to market conditions regardless of whether the market condition is satisfied, provided that the requisite service has been provided.

Stock-based compensation recognized as capitalized development is included in leasehold improvements, property and equipment in the consolidated balance sheet. The following table sets forth stock-based compensation expense, including SOSARs and stock awards:



	Year ended December 31,
	2015		2014		2013
Stock-based compensation expense	$	59,465	$	97,618	$	64,781
Stock-based compensation expense, net of tax		36,666		60,084		39,465
Stock-based compensation expense recognized as capitalized development		1,554		1,178		1,124

The tables below summarize the option and SOSAR activity under the stock incentive plans (in thousands, except years and per share data):



	2015			2014			2013
	Shares	Weighted-Average Exercise Price Per Share		Shares	Weighted-Average Exercise Price Per Share		Shares	Weighted-Average Exercise Price Per Share
Outstanding, beginning of year	2,087	$	395.46	1,690	$	312.44	1,449	$	274.92
Granted	379	$	659.12	764	$	545.66	672	$	320.21
Exercised	(716)	$	297.25	(315)	$	310.32	(369)	$	176.23
Forfeited	(56)	$	554.73	(52)	$	419.74	(62)	$	329.76
Outstanding, end of year	1,694	$	490.70	2,087	$	395.46	1,690	$	312.44



	Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Years of Contractual Life	Aggregate Intrinsic Value
Outstanding as of December 31, 2015	1,694	$	490.70	4.9	$	92,773
Vested and expected to vest as of December 31, 2015	1,640	$	486.10	4.8	$	92,622
Exercisable as of December 31, 2015	321	$	339.72	3.5	$	45,112

During the years ended December 31, 2014, and 2013, the Company granted SOSARs that include performance conditions, in amounts totaling 220 and 191 shares, respectively. No SOSARs that include performance conditions were granted during 2015. As of December 31, 2015, 426 SOSARs that include performance conditions were outstanding, of which 316 awards had met the performance conditions. In addition to time vesting described above, the shares vest upon achieving a targeted cumulative cash flow from operations. The total intrinsic value of options and SOSARs exercised during the years ended December 31, 2015, 2014 and 2013 was $260,466, $88,245 and $91,178. Unearned compensation as of December 31, 2015 was $40,298 for SOSAR awards, and is expected to be recognized over a weighted average period of 1.5 years.

The following table reflects the average assumptions utilized in the Black-Scholes option-pricing model to value SOSAR awards granted for each year:



	2015			2014			2013
Risk-free interest rate		1.1	%		0.8	%		0.5	%
Expected life (years)		3.4			3.4			3.4
Expected dividend yield		0.0	%		0.0	%		0.0	%
Volatility		30.8	%		33.3	%		35.4	%
Weighted-average Black-Scholes fair value per share at date of grant	$	156.32		$	136.18		$	82.51

The Company has not paid dividends to date and does not plan to pay dividends in the near future. The risk-free interest rate is based upon U.S. Treasury rates for instruments with similar terms. The volatility assumption was based on the Company’s historical data and implied volatility, and the expected life assumptions were based on the Company’s historical data.

A summary of non-vested stock award activity under the stock incentive plans is as follows (in thousands, except per share data):



	2015			2014			2013
	Shares	Grant Date Fair Value Per Share		Shares	Grant Date Fair Value Per Share		Shares	Grant Date Fair Value Per Share
Outstanding, beginning of year	70	$	525.60	71	$	520.27	120	$	218.34
Granted	47	$	785.32	2	$	495.92	68	$	527.45
Vested	(1)	$	413.07	(2)	$	284.11	(117)	$	215.76
Forfeited	-	$	534.55	(1)	$	410.55	—	$	—
Outstanding, end of year	116	$	511.88	70	$	525.60	71	$	520.27

At December 31, 2015, 106 of the outstanding non-vested stock awards were subject to performance and/or market conditions, in addition to service vesting conditions. During the year ended December 31, 2013, the Company granted 66 stock awards that were subject to both service and performance vesting conditions (“the 2013 stock awards”). The quantity of shares that ultimately vest is determined based on the cumulative cash flow from operations reached during the three year period ending on September 30, 2016. The quantity of shares awarded ranges from 0% to 100% based on the level of achievement of the performance conditions. If the cumulative cash flow from operations during the three year period does not reach a specified level, no shares will vest. During the year ended December 31, 2015, the Company reduced its estimate of the number of the 2013 stock awards that it expects will vest, which resulted in a cumulative adjustment to expense of $10,851 ($6,691 net of tax as well as $.22 to basic and $.21 diluted earnings per share).

During the year ended December 31, 2015, the Company awarded 40 performance shares that were subject to service, performance, and market vesting conditions (“the 2015 stock awards”). The quantity of shares that will ultimately vest is determined based on Chipotle’s relative performance versus a restaurant industry peer group in the annual average of: revenue growth, net income growth, and total shareholder return. The quantity of shares awarded ranges from 0% to 200% based on the level of achievement of the performance and market conditions. If minimum targets are not met, then no shares will vest. Each performance and market measure will be weighted equally, and performance is calculated over a three year period beginning January 1, 2015 through December 31, 2017. During the year ended December 31, 2015, the Company reduced its estimate of the number of the 2015 stock awards that it expects will vest, which resulted in a cumulative adjustment to expense of $1,344 ($829 net of tax and $.03 to basic and diluted earnings per share).

The Company’s measurement of the grant date fair value of the 2015 stock awards included using a Monte Carlo simulation model, which incorporates into the fair-value determination the possibility that the market condition may not be satisfied, using the following assumptions:



	2015
Risk-free interest rate		1.0	%
Expected life (years)		2.9
Expected dividend yield		0.0	%
Volatility		33.7	%

Unearned compensation as of December 31, 2015 was $19,511 for non-vested stock awards the Company has determined are probable of vesting, and is expected to be recognized over a weighted average period of 1.6 years. The fair value of shares earned as of the vesting date during the year ended December 31, 2015, 2014, and 2013 was $634, $783, and $58,941, respectively.